Friday, March 28, 2014

Remember her? She is singular, alone but likes it that way, her own person, cool, chic - and in her hand she shows you how you too can join in her chic "aloneness" - just go buy the Apple iPod, and you too can become chic and at the top of the pyramid. Making a stand, not worried in the slightest with your aloneness as it certainly isn't loneliness as you have status! And note she has her fist clenched in courageous defiance over - well that doesnt matter. There, take that, I am chic, powerful, dance, and very very unique and elite as I am not one of the masses. Why isn't she one of the masses? Because she is alone by choice, cut off by her headphones and dancing.

One has an idea she is a revolutionary, striving for - well.something important. Maybe she is in the camp of Occupy Wall St, or doing important 2% stuff, or upset about - something unique singular, alone. Something cool.

So, you want to be as cool as this woman, go buy an iPad, actually any Apple product works, and you will be one of the few. It doesn't matter that every single one of your friends, colleagues, teachers, peers, parents, kids, and..... have an iPod, do the same dance - you are still unique, and your iPod and Apple product set you apart and give you a tribal identity.

This is where Steve Jobs genius lay, not in the product tech side of life - his stuff is over wrought but sexy and cool looking - but in marketing and the ability to convince the vast majority who ended buying Apple products, they are really a small elite tribe. Absolutely stone cold brilliant.

He jumped onto the channel that Tom Wolfe, to the best of my knowledge, first described in Radical Chic & Mau-Mauing the Flak Catchers , a piercing savaging of the ego and pomposity of the elite as they use "causes" to secure their uniqueness and class. Radical chic was first used as a way to identify the upper class, the caring brilliant upper class, who used "causes" the way their crew use to use mink coats decades prior. Wrap yourself in them.

Volkswagen then picked this up as a way to get an advertising message across, and off we went.

Bu the grand champion of "cause" advertising was Steve Jobs, who wasn't happy with the true individual radical early Apple users 5% market share, he wanted Apple to stay radical, stay with the "cause", but get to massive market share. He didn't really start to do this in a big way until he borrowed a page from McLuhan and figured out the medium becomes the message and vice versa and - with genius - all that early true high tech capabilities wrapped themselves up with music and a way to secure trademarks for the music. Brilliant.

Didn't matter the product sorta sucked that the headphones leaked enough to drive anyone within 20 feet nuts, as if you held a vintage "boombox" on your shoulder, you were empowered, you were dancing alone. You were chic, you joined the tribe - far out.

And the joke being of course that your participation with Apple made for what would become one of the most mainstream behemoths, right up there with Exxon. Far out.

Franzen perhaps nailed it best in Freedom, the hypocrisy at the core of this chic hipster tribal marketing:

“I think the iPod is the true face of Republican politics, and I’m in favor of the music industry … standing up proud and saying it out loud: We in the Chiclet-manufacturing business are not about social justice, …we’re not about a coherent set of national ideals, we’re not about wisdom. We’re about choosing what WE want to listen to and ignoring everything else…. We’re about giving ourselves a mindless feel-good treat every five minutes. …We’re about persuading ten-year-old children to spend twenty-five dollars on a cool little silicone iPod case that costs a licensed Apple Computer subsidiary thirty-nine cents to manufacture.”

Global warming figured this out and off they went as well to where you had to believe in global warming to dance comfortably alone with the woman above. You had to believe. That is why global warming is the first "science" that is completely dependent on mainstream marketing and advertising - polar bears seemingly stranded 1000 miles offshore and and and.... You got to get your iPod, you got to get your iPad, you got to believe in global warming so as you could dance with the woman all in black. or you became that poor dullard in the early Apple ads stupidly self destructive and exiling himself using IBM. You went out and slaughtered baby polar bears, you farted methane enough to make yourself an EPA site and you would never ever get the woman in black above.

So- you really really want to be the Apple guy, so go buy your iPhone and your iPad and of course you already got your iPod - heck you might go get a Mac now. It makes you radical chic, and you then belong.

Brilliant brilliant marketing.

Now global warming wrapped itself in this moving from fuddy duddy science to the slickest of the slick invitation to the tribe stuff. The big shift of course was Oscar winning "Inconvenient Truth", made by one of the slickest of the slick movie directors, or really advertising director, Davis Guggenheim (always wondered if he was named "Davis" at birth) married to the glorious Elizabeth Shue.

Now full disclosure, Davis - despite being the Apple guy that he is and very very cool - gutted a hedge fund I was with with a movie who I have through CSR forgotten the name of but has something to do with a young woman - no doubt the Apple woman dancing above later in life - finding herself by playing elite soccer. It was perhaps the worst film made in the last century, destroyed the hedge fund pretty well and the only time I ever saw the film later was when my kids gleefully pointed out to me while traveling it was offered in the hotel in-room film menu for $2.00 while all the other films were offered for $14.00. Oh well. Our problem, we tried to be a cool hedge fund and buy our way to dance alone with the Apple woman and who would be better than the grand wizard of global warming propaganda - Davis.

Global warming crew if they have no science they can at the very least take Chiat Day out of business if they wished, and it is now "c-l-i-m-a-t-e c-h-a-n-g-e" or as I like to see it global warming with absolute value signs around it - |global warming| - so they got you coming or going now, cold or hot. But it is once again Apple marketing, to be cool you got to believe in climate change, or |global warming|.

Now after Davis taught them, if you propose to the unwashed that with this

you can get the Apple woman, off they go and we have physicist conducting symphony orchestras on behalf of climate change, or |global warming|.

Now I get to the point.

GM released the "CaddyMan ad which at first was so obnoxiously elite Americana it was a delight and refreshingly honest. Yes in the USA people deep down dont really want the Apple woman, they dont need a tribe, they dont need a meaning, they dont need to own a iPod but for ease of listening to their old Belafonte stuff or their Tom Petty and as soon as they got shed of this Apple crap and into Android, they are now on the far easier and less messy Google Play. All they want is ridiculous comfort, fun, status, power, perfect kids who adore them and of course these guys drive a Caddy, an electric Caddy at that but that is sorta a joke from their point of view and they will drive a electric hybrid because it is even more expensive and the 400 Vortex engine is still in there. And in the end we know the sordid truth - they do get the Apple woman.

But isnt this guy the one you hate, a 2%? Hell a .002%. He dont have a iPod, right? He dont do Mac, no how? But the ad company Rogue that did the ad are coming in like a lazer, they are calling your bluff, they are speaking real truth, and in the sanctity of your own home where no one will see you, you are offered a deal to identify yourself with Caddyman, and stop using all this cheap Apple shit and living in cheap terrible spots claiming it is part of your identity and just go unabashedly main stream American. Come on, fess up - you want that Caddy, you want that pool, you do work like hell - you sneer at those Frenchies who take all of August off - off! - and your kids are perfect co-conspirators, giving you high fives. You hate Apple guy, that sneering snot nosed twerp who all day long tortures you at the office. And you know the truth who gets Apple woman in the end. Caddyman. The Caddy ad was perhaps a wee bit overplayed and overstayed its welcome, but it is a brilliant counter to the "emperor has no clothes, but you are member of the tribe Apple" mmarketing. Now I wonder if this indicates the back lash is coming, tje end of the lemming Apple marketing ability is over, that the radical chic is once more seen through and has become a joke.

But Ford doesnt thinks so.

So Ford completely screwed up and talked into it by their Davis crony Ford's internal folks 'Team Detroit" who lock step parodied the GM Rogue ad:

The arrogance of Ford 'Team Detroit" have neatly skewered themselves upon the Rogue agency sword, falling into the trap in ways that the Rogue GM guys could not have dreamed of in their wildest imagination. They take on all the Apple marketing sanctimonious ideals, not heeding the great secret of such marketing - don't go "full retard", don't go full global warming Occupy Wall Street, anti 2% - or don't bite the hand that feeds you.

Let us count the ways Ford screwed up - the Apple Woman now becomes "Ms. Eat Your Peas" lecturing us on what dopes we are not collecting our merde, not saving our food scraps for something or other and not dressing really really - well she was just out hanging in manure fields or something - and I actual get a bit of a flash back to Angela Davis and..... And that car?? When Apple made me buy something to join the tribe it was at least cool looking, did the job, and was even fun. But that car? man that is martyrdom for the cause and I don't want anything to do with that. This Apple woman frankly scares me a bit and likely will sue my ass off for something. I don't want this tribe, no sirree - I want tribes that get me with the other Apple woman who's radical attitude is sexy likely empty and fun - this Ford woman aint fun and she likely can not dance. Running around collecting manure.

And the car:

No No No No count me out, and this Ford ad is a public service announcement to warn me away from what this trip is all about. "Team Detroit" are illiterate sods who never read Franzen and didn't figure out the Apple joke and Chiclets, likely don't know who Jonathan Swift is and don't get satire and a wink, and all wrapped up in their smug hipster stuff, they simply went out and self immolated. I bet they last another 3 weeks at Ford - at least the tough pragmatic Ford guys I met when I was trying to get into the pension - my version of the Apple dancing woman back then.

Ok, I will talk about how obnoxious it all is - how I never liked that guy anyway in Band of Brothers, how crass and so so awful. And I will say this as I go tip tapping on my iPad - but I will, when no one is watching sneak off and take a look at this:

Sorry Manure Lady - you aint the Apple woman anyway, you cant dance.

I am the Caddyman. I hate Frenchies taking all of August off.

And if I can ever get a loan, I am buying that Caddy and the electric will allow me to keep club tribal membership and still get all the good stuff.

Wednesday, March 26, 2014

The current crisis in Crimea if "played" right
could be the final straw and do what West have been trying to do for centuries,
starting with Napoleon, and bring Russia to heel and then let them become a partner with Western modernity. Nowadays no one requires Russian servitude,
all the West requires is Russia adopt rule of law, universal rights, and
democracy. That is "all". This is more of a security
concern than idealism. And if one has even a sorta passing regard for universal rights, then it is what Russians want as well.

Now, Putin and Russia are one and the same.
Russia is suffering the same ole same ole Eastern disease of insisting
on a despotic near religious, certainly larger than life, leader. This is the ancient Eastern approach of power, and seems to be a disease of the East. Note how Diocletian was a republican in a sense but then he moved to Split, founded the Eastern Roman Empire and become a God like figure, in fact he did become a God. This desire of a leader in the East to become the "Great Man" is obviously firmly back in place now in Russia and in the past had eased West at times even getting as far as Germany with Hitler before easing
back to now just the Russian borders. it
is Eastern as shown by China and down to Singapore and off and on in Korea and
Japan. The Great Leader. Father.

The setting in UKR is very interesting and to some degree, but not
at all as much, the same in Estonia, Latvia, Poland and Romania. The culture has one pillar based on Death
and the understanding how much death man can inflict on man. East Germany also understands this. But then as you go further West the culture
no longer has Death as a core tenet but one of progress and redemption and
individual achievement. In the West, myth or not, it is the individual that matters and in the East it is the state or collective almost always personified in the Great Leader-God.

In this land of death - what Tim Snyder calls "Bloodlands" - and the title of his book - there is a
constant sense of the impermanence, or potential of swift end of even best plans and
aspiration. I sense Poland has pulled
out of this to some degree and the Baltics following. Europe has been relieved of the main cause of
this culture which has been Germany - "keep Russia out, Germany down, and
Americans in" - but as we have discussed there have been some problems of late as
Germany is starting to "get up", but at least to date it is not hard
power but soft power and finance that is raising them up. But the
culture of death has left Europe. In Eastern
Europe it is still there because the other major cause of this culture, Russia,
is still empowered though greatly curtailed in terms of the global impact since Stalin. However this Crimea emergency shows they
still have the ability, though maybe not to invade the West, to keep pumping the death
culture into parts of Eastern Europe.

This death culture of Russia must end. And in many ways it is a very literal "death culture", Russia is being destroyed from within:

And
to my view the only way to end it is to draw permanent borders around Russia
first, then contain - a final continuation of the Kennan plan - and then the
Russian people will shed their deadly fatalism and seek democracy. I think the only reason Russians seek and
support such neo-satanic folks like Putin is they are imbued with fatalism that
life can change so horribly and drastically one needs the "Strong Man".

So to secure borders we must respect the integrity of Russia. Latvia and Estonia showed that Russia will
not go down the Sudetenland path where Russia colonists were pushed into a
country to break up its ethnic domain - sort of a reverse ethnic cleansing - as
though they feinted hard at the Baltics and even conducted cyber warfare, they were backed down from Estonia and Latvia, mainly
due to those countries' NATO membership. So Putin
will not go into East UKR or that area just north of the Dnieper delta even
though there are a majority of Russians as long as the "true" Russian
borders are sanctified. That means the
absolutely unequivocal status of Crimea being Russian is acknowledged. Putin blew it by taking Crimea, for if he
left it there but under protest with UKR, he had a powerful way to keep UKR completely
NATO free. But he did not, and the
writing is on the wall based on Estonia and Latvia experience that UKR, once
shed of Crimea "trap", must join and will join NATO.

Then with the borders agreed to by Russia, immediately NATO forces move
into UKR.

Then we can start to work on Russia, using all the myriad ways to now pierce the Russian border. Ideas cannot be embargoed. And, assuming to bring a Romantic
Fukuyama 'end of history" dialectic
to Russia is good (I think so) - the way is clear for the bringing of Russia once and for all into the West, something Peter the Great
started but has constantly been attacked by recidivists and been constantly pushed back to the
East, then West - and so on until it is now "Eastern".

We first guarantee Russia borders by agreeing to stringent security
deals, even to the point the USA will assist Russia if their borders are in the
slightest challenged or if they suffer a cataclysmic event like a terrorist
event. Then we move in for the
"kill".

We open USA and
perhaps EU markets to Russia on a asymmetrical free trade basis, at first seemingly
at great disadvantage to the West and huge advantage to Russia. They will pounce on this, likely with glee.

We
basically "buy off" the oligarchs.
We offer great ease and even financing for Russian students to the US colleges,
we allow passage for all the Russian navy, we offer near instant Green Cards and
visas for any Russian that can show means.
We absorb and absorb all Russian excess capacity and then some as we pay
top dollar for goods such that they start to hold back those good from Russians
themselves. We give give give to
Russia.

We force Russians to examine
inwards, to look to themselves and start to reread Chekhov and discourage the fatalism of
Dostoevsky. We open our borders to all
artists and athletes. And keep them looking forcing Russia via largess to look inwards. To face the
bizarre mortality rates, the gutting of their lives by drugs and vodka, the
crass brutal kleptocracy. We force them
to look inwards by giving them a secure border and then largesse upon largesse
upon largesse. We give give give. We show there is another pathway, a way of
objective individual truth versus social structure "science" or fascist national glory, so as to find meaning in life.

We
break the cynicism and worship of death. Putin and Russia have a secret, that they are desperate to contain. That secret is that Russia is a very weak and ineffective country in terms of projection of power and ability to execute organized plans. Sochi was a huge failure and so obviously shrill with empty stands and a setting that looks like it will crumble by July. And it cost 1/2 the Russian annual military budget. I imagine Russia is broke now. It is my belief that Ukraine could destroy Russia on the battlefield, not just because Russia military is deprived of its traditional battle NCOs and senior leaders, who were Ukrainians schooled in Afghanistan - but because their equipment is decrepit, military morale is non existent. when you have moved the mortality rate of your average soldier down 10 years while you were in power - you will find they have no morale, no reason to fight.

I think in most current history analysis there is always a huge error
going down, a cynicism, that the local barber or shopkeeper or worker is just
too damn stupid to know what is good for themselves and their family. I see this as elitist and very similar in vein
to colonialism.

Now if you look at all the above, rock solid security around Russia combined with largess to encourage change and evolution to a Fukuyama dialectic, which Obama
is sorta stating now and all liberal pundits claiming in one way or another for one
part of this approach or another - you really have:

Tuesday, March 11, 2014

Follows is a very soild "proof" of the current labor market tightness using qualified labor metrics.

The main labor metrics, U3 and U6 series from the household survey, are being ripped through by massive revisions, demographic changes, and huge numbers jumping from out of the labor force then back into the labor force. Since these cross rips are hitting both the denominator (labor force) and numerator (unemployed), U3 is a good dynamic indicator of relative changes of the supply of labor, but is likely not an accurate outright number at this point. U3 suggests there is still slackness in the labor supply which does not exist. The opposite condition exists - labor is tight and has started to create inflation.

Not going to get into the debate on LFPR or EP ratios, and in anycase those are not monetary economic issues but social policy issues for Congress or the administration to figure out. As far as FOMC policy, neither the employed to population ratio nor the labor force participation rate provide any way to apply policy tools. There is nothing the FOMC can gain traction upon or anything that provides the FOMC with a handle to apply change. Yet that doesn't stop most FOMC members babbling on about qualitative social questions. Such is the 'Great Fallacy" of forward guidance.

The Fed will exit the qualitative debate and return to the science of monetary economics, or as close as they can, to a rules based or axiomatic system of analysis with measured responses such that a regulated controlled application of policy tools occurs. The biggest problem with forward guidance is it throws the Fed into a long term commitment and deliberate blindness which if it results in policy error will be unforgivable.

The U3 rate is clearly out of whack as shown by the Beveridge Curve:

But it is becoming "rational" with U3 returning to the norm versus JOLTS job openings rate. This is shown by the very large improvement in U3, moving to the left and back to the usual relationship to demand (above arrow). Still, the supply of labor as per U3 is a good 1% higher than the demand for labor would indicate. There are large rips and unique anomalies hitting both the numerator and denominator of U3. But it will be noted in hindsight that the move of U3 "correcting" itself and re assuming the usual schedule to jobs openings started last July 2013 with the movement towards the labor demand over the last 5 months suggesting that the labor market is dramatically tightening up.

Confidence in the prediction, or current analysis, of labor tightness given the above, can be provided by observing the most current labor metric - weekly initial claims without the seasonal adjustment. This is why the CES folks at BLS use initial claims to revise the baseline for the employment indices. Weekly initial claims non-seasonally adjusted data is mapped out over a surface of the 2006 data:

A closeup of "Week 11" NSA initial claims for the last 32 years shows the very strong strength :

During the July 2013 auto refit, initial claims completely returned to the norm and indicate a full recovery had occurred. Again, the same time that the U3 Beveridge Curve started to correct. This then can be used to qualify the U3 Beveridge Curve above, to gain confidence noting the closing back to the usual schedule at the same time initial claims indicate full recovery, returning to the 2006 level. Given the large movement of U3 parallel to the X axis towards the JOLTS job openings data for the last 5 months, it is now not aggressive to describe that the labor market is now very tight. (However there is still noise in the initial claims as the impact of the shutdown and the last 7 weeks of tail-event weather shows.)

Another view of this is to view a contour mapping of NSA initial claims since 2002, showing the summer refit and how current status equal or better than 2006 experience:

Initial claims data is not impacted by the LFPR dropping, for the obvious that to get the insurance you have to stay in the labor force, and then insurance payments cease as one returns to work. The labor force has increased since 2006 despite the LFPR, so a better metric is the insured workers unemployment rate, or IURSA (FRED), than the levels. This IURSA is by definition a qualified pool of labor which is and has proven to be employable and to collect their unemployment insurance must remain in the labor force. IURSA will not be changed by the emergency extensions Congress granted, other than to withdrew from the LFPR. It should be noted that this is not an argument for public or fiscal policy, or that U6 and then the declining LFPR is acceptable - it is just that LFPR has no bearing in this discussion of the labor inputs for FOMC policy.

A steady "normal" relationship between IURSA and JOLTS job opening rate emerges, above the data noise of the U3 Beveridge Curve above, that shows that in terms of qualified labor the Beveridge Curve relationship stayed intact throughout the downturn and into the recovery, and shows that in this populace nothing much changed to the labor demand supply schedule:

We can throw CPI onto the above IURSA Beveridge Curve and then the nature/status of labor becomes apparent. Inflation starts when labor supply tightens. Going forward, given any growth, "new normal" or "old normal", very little qualified labor is left and currently (below) we have obviously moved past NAIRU and a Phillips Curve normal relationship still holds sway.

Inflation is now upon us, started, as usual, by labor market tightness:

We have passed the point that well over 2% inflation is now present or will be shortly and then we will jump to 3% plus, given past history. If the schedule of labor for that part of the pool that is inelastic has been maintained, and everything above says it has, the Fed will have no choice but to tighten significantly and swiftly ending ZIRP and moving quickly to a 2% Fed Funds.

A better showing of current labor tightness can be found when wage growth is substituted for the above CPI. Sticky pricing occurs as employers adjust not by reducing wages, of course, but by layoffs. That is why the regression on wages is flatter and never goes negative compared to CPI. This also means that when wage inflation commences the Fed has to have a powerful response, for being sticky once inflation starts it is very difficult to turn back down:

The lower boundary of the schedule of wage inflation versus job openings is now being approached and general wage inflation will start. No other conclusion can be had, once using the "right" Beveridge Curve, than that a general inflation is about to commence if is not already present.

The Fed will have to be very bold indeed to insist on Odyssean Policy and stick to forward guidance of ZIRP when the most stickiest inflation moves towards 3%, led by wage inflation.

The labor market is very tight now and there is little in the way of qualified labor left to induce to work but via a significant raise in wages.

Saturday, March 8, 2014

Common sense has that household employment measure must square with the establishment employment data given that both data arrays are pretty well the same, in the end. But the improvement in establishment data over the long run has been greater than that for the household. The establishment comes from the Current Employment Survey (CES) and the household comes from the census Current Population Survey (CPS). Rather than repeat the good work BLS has done on this issue, first a read of

http://stat.bls.gov/opub/mlr/2006/02/art2full.pdf

"Understanding the employment measures from the CPS and CES surveys." by Bowler and Morisi is a good use of time.

What becomes clear is that the most useful read of employment, or at least a good starting point, is not the monthly change or current level of either array (I am now going to call the established survey the CES and the household the CPS for brevity) on its own, but how the CES and CPS are playing off each other. That way the quality of the current phase of the cycle can be identified and the quality of the recovery or recession understood. There is little information in any one month of NFP payroll or the unemployment rate or household change. Frankly the drama around the monthly employment data day is undeserved and a waste, unless one is at a unique critical point experienced once every 30 or 50 years (1983 and 2009) or if the number surprises on magnitudes of at least 2X to 3X of expectations. However considering the differences between the CES and CPS dynamics both short and long term is very useful.

First consider the Bowler and Morisi grid outlining the differences between the CES and CPS:

The most important differences are that small business proprietorship with family contribution of work often unpaid is in the CPS but not the CES. In addition agriculture, domestic employment, moonlighting military, and workers on leave are in the CPS but not the CES. The worker on leave was an important difference during the furlough "crisis" of last quarter. Multiple job holders are counted per job held in the CES but only once in the CPS. The CES is centric to the establishment structure - hence its label - while the CPS is centric to the entire nations demographics, or CES is impacted by birth/deaths of the firm while CPS is impacted by birth/death of the labor force.

Since all the above tend to respond specifically to certain phases of the economic cycle in a correlated way, the CES will do better in the last stage of a well rooted recovery of the economic cycle, but will do worse than CPS in the initial phases of a recession. During the reorganization and turmoil (Schumpeter's "creative destruction" phase), the firm population dynamics will make the CES volatile and confusing, while the non impacted sample characteristics of the CPS will provide a clear picture of trend and the quality of growth. And the best concurrent indicator is initial claims (which the CES folks use to revise the CES.)

Bowler and Morisi portray these differences by tracking the ratio of CES to the CPS non agriculture and wage component:

In general CES ratio to CPS adjusted is doing worse is an important bearish flag and at times predicting but always confirming of a downturn and is shown by the ratio decreasing.

But more information is found by not seeking equivalency with the Bowler Morisi adjustment, but plotting the ratio without their adjustment as the differences between CES and CPS provide more insight for understanding the macro dynamics underway and the "nature" of the recovery or downturn.

This shows that when the economy is in downdraft the CES quickly deteriorates as large establishment businesses go into a defensive mode and reduce employment. This is shown that when a establishment downturn starts, the most obvious one being the DotCom bust leading into 9/11 and then the corporate fraud crush, household is not as impacted and the bottom falls out of CES and the ratio to CPS plummets. Otherwise in a business cycle downturn from monetary policy tightness (usually) the CES leads but also CPS drops as well, making for a more gentle downturn in the ratio. Therefore the dynamics of this ratio can tell us a lot of the nature of the business cycle or recession or recovery.

The largest cumulative difference in both the Bowler Morisi adjusted and the adjusted was in the 1990s (labelled "III") which indicates to my read that a profound change was underway within the establishment data as new technology surged the CES index. I put this to a Schumpeter Creative Destruction phase wracking the economy and redefining the entire makeup of employment. This was massive in Phase III above but also shown in Phase I, II and perhaps is starting now with a Phase IV.

It is interesting to note that the ratio of CES/CPS discretely, perhaps gently, rolled into the 2009 nadir which indicates the impact on employment was not differentiated between sectors during the crisis but was visited equally upon all sectors at the same time. Also the deterioration as far as the quality of the economy began after 9/11. A close up of the above set from 1/2000 on shows this well where there was some improvement post DotCom but then that steadily eroded after 9/11.

It is my belief that the most significant event for the last decade and the current economy was 9/11. That the USA is still in war, though that is ending, and the pressures and strategic arrangements required of war, especially allowing China to gain massive beneficial terms of trade and market access to the USA so as they would not be a problem as USA fought the war, is the near entire story of the last 13 years.

That the solvency crisis was the final straw of a deterioration visited on the USA economy from war as the surfeit of trade imbalances led to a hyper liquidity that found its signature asset in mortgages. So with the end of war and with the addressing of the China sourced imbalances, the quality of the economy is not only recovering from the solvency event but also from the strain of war and the near belligerent trade policy of China.

If CES to CPS ratio is a solid indication of the quality of the economy, then for the first time since the 1990s the USA is experiencing a revival of immense size. When one look sat the long term graph above the previous, it is obvious the USA has experienced three such surges (marked I,II, and III) and not until the last two years are we seeing patterns that are similar to the three prior surges and may be surge IV. During these three surges prior the great gains in US real GDP productivity and wages growth occurred, except perhaps wage growth was muted in the III surge of the 90s (but I suspect further work will show that it does not account for the Pareto Distribution in context of a immense economy), and the three surges were the engines that expanded US GDP ten fold. note as well that all three surges have war as their main inspiration - WW II, Vietnam and the end of the Cold War. I think this is the story underway for the current recovery that it is not a routine cycle but is fueled by epic historical process.

The ratio of CES and CPS also disclose massive movement of payroll (the end expression of CES), for if this ratio does capture the qualitative aspects of the US economy, September was a one million leap in payroll, effectively. Now most of that was from the September, the actual payroll was reported as a large 237,000 but nowhere near the one million qualitative change. The falloff in Oct and Nov, almost totally offsetting the September qualitative gain of one million, is "faux" as is die to how the 800,000 furloughed workers were to be accounted for. The take home is that payroll, below the surface reported, is undergoing massive positive qualitative movements that will be shown to be permanent and might be a historical Surge IV. Also this surge in qualitative CES will always have large bottlenecks and frictions and spark wage inflation - we are obviously past the NAIRU level. The CES surging shows that unless the FOMC raises Fed Funds, not to prevent this qualitative change but to be able to fulfill their mandate, the FOMC will lose all control. Fed Funds should have moved when this surge started, in the 4th Q 2013 but has been kept at bay by goofy monetary theory, the phony budget crisis, and now the unusual weather - which dont really have strategic impact but for obfuscation of the data.

Tuesday, March 4, 2014

My quick take on the Ukraine - have long considered the area
but this is a very quick summary.

My basis is built on Tim Snyder of Yale and Tony Judt, who between them have written perhaps the best history written on Modern Eastern Europe. Judt died last
year I think, but Snyder has written a series on the recent crisis in the NY
Review of Books which can be accessed online.

The keystone is the horrific history Snyder wrote called
"Bloodlands" where he succinctly and powerfully recounts the near 15 million dead in just the Ukraine part of Eastern Europe from post WWI to WW II. Ken Lowe's "Savage
Continent" carries on the this terrible history post WW II. The
concept that must be realized is that in the recent memory of all Ukraine elderly, and
front and center in the Ukraine cultural memory is a flood of blood, horror, chaos and deceit. Horror of Conradian proportions where God has disappeared, or even some semblance of humanism.

There really is no historical country per se called the Ukraine, having
been a principality of the Czar for a long time and only a recent political construct post the USSR break up. But it does have a unique culture and "people"
that has been maintained for 1000 years plus. Religion is very important,
just as in Ireland or Serbia, with a tribal sense of being either Roman Catholic,
Greek Catholic, or Russian Orthodox. Greek Catholic is the dominant
religion and even thrived to the exclusion of the other two under the USSR, as
the other two forms were heavily repressed relatively speaking. Russian
Orthodox has rebounded and I suspect much of the current war has roots in
this rebound with the Russian Orthodox used as a tool of subversion by
Putin. If there is a unique Ukraine people it is Greek Catholic who readily enter union with Roman
Catholic, allied together against the re-emerging Russian Orthodox. Once Crimea is
considered, the split is much more pronounced, almost 50/50 between the Catholic
versions and Orthodox, with of course with a residual of Moslem Tatars.

Crimea is not part of the Ukraine as depicted above but for
the political tactical play, which I must say was rather brilliant, of Khrushchev
gifting Crimea to the province of Ukraine in 1954. It
seems he anticipated an angry Catholic Ukraine, perhaps joined by the Tatars,
and "shafted" them by sticking a Russian enclave into the
Ukraine to assure loyalty and provide justification by the USSR, and later Russia, for any suppression of rebellion. A Russian "Sudetenland" if
you will. The area was kept as an 'autonomous" province in Ukraine
but it is all a device. Crimea can never be seen as a "real"
part of the Ukraine. It is Russian.

Furthermore the displaced survivors of the ethnic cleansing
of Islamic Tatars have returned, many with a "Great Myth" (and I don't
mean it isn't true, just that it has become a fiercely near religious commonly held
story of the Tatars) of the trek they took, with well over 50% of the
people killed in he trek, from Crimea to Siberia then back to Crimea. Tatars are about
10% of the Crimean people and they are inconsolable and always at the throats
of Russia like Chechnya. So Khrushchev decided it was better to have Crimea as part of the
Ukraine.

USSR also took lands from Poland and ceded them to Ukraine
post WW II, so down the road this issue will emerge. These are Roman
Catholics and in the end I suspect their loyalties are to Poland and they are distinctly Polish. This also gives Poland not only a security concern given proximity but a duty to face down Russian aggression.

So USSR effectively moved the center of gravity of Eastern
Europe towards Russia by joining Crimea and parts of Poland to the
Ukraine.

Now to the first point.

The entire Ukraine has been a river of blood and gore since WW I and even before that if the Ukraine -Poland War and
the Russian carnage on the Eastern Front of WW I is thrown in. The history of the Ukraine is such
a massive interplay with death that I think it bewilders almost all non-Ukrainian policy
designers and most historians to date. That is why Snyder and Judt
were/are so important as they reintroduced this record of carnage, combining the Holocaust
with the Holodomor. And the Holodomor is the central core factor for understanding the
Ukraine, explaining why the Maidan protesters were so brave and willing to be
slaughtered with incredible fortitude and fatalism. All Ukraine knows
death the way Americans know baseball. Death and blood is the central tenet of their
being as a nation. Death is the national binder and creates the Ukraine as a nation. You cannot make sense of the Ukraine until you understand the Holodomor, the policy of mass execution of a people by Stalin via forced starvation. For a time, in the Ukraine, unless one was very fortunate or politically protected, one was an active cannibals. Scenes that were considered fantastic in the recent movie "The Road" was reality during the Holodomor. It is hard to imagine let alone define what that does to a people's shared psychology. Almost every single Ukrainian lost family in the Holodomor and very likely they were eaten by their forefathers. This sounds crazed and over the top, but it is true. Estimates are wide ranging to as small as 5 million Ukraine dead to as much as 12 million. So every Ukrainian living today has been impacted by the Holodomor in very similar fashion that Israel was impacted by the Holocaust. Roman Catholic Ukrainians and to a lesser extent Greek Catholic perceived Hitler as a liberator at first and this is why the psychology becomes even more twisted as most of the Holocaust prison guards were volunteer Ukrainian SS and actively fought in SS units with the Romanian SS, doing a significant amount of the fighting as Germans swept through Crimea. Which is the reason Putin keeps citing "fascists" backing the Maidan protests and central tenet of Russian propaganda is the current Ukrainian government is either backed by or is "fascist". It is bizarre that the Holodomor motivated many Ukrainians to become active participants in the Holocaust. The evil brilliance of Stalin torqued and kicked Ukraine into a strange political machination of Russian will - and Khrushchev carried this on with attachment of Crimea.

That means an unrelenting problem until a
"true" Ukraine is established that is not based on the political
machinations of Stalin. They do have a "people" which would be
the basis of a stable country, but their experience in rule of law and
sovereign political ways and means is young if not naive. Therefore the
corruption and passion that without guile or shame keeps swarming to the top. But the West must realize that Ukraine will not
settle and acquiesce on some immediate expedient solution. They have a tempered and forged ability ability to die in droves for a cause. Perhaps the Chinese are the only
similar fatalistic people who accept death as a normal political means.

This centrality of death in the Ukraine, as seemingly innocuous and trivial as the Ukraine is
in terms of economics, has the ability to re-introduce war to Europe. While Europe could accept great carnage in Serbia and calmly waited for the Americans to implement a remedy, they cannot
accept similar in the Ukraine. Poland alone will act if Russia invades Ukraine as well as the other
bordering states. Turkey will act on behalf of the Tatars. Russia
must be backed down to prevent war and the traditional dance with death of Ukraine stopped.

The intelligent approach, or really the only approach, but
if applied will likely start the end of Putin and fascist Russia, is to
simply correct the manipulation Khrushchev applied to the Ukraine. Simply
irrevocably force Russia to assume full sovereignty over Crimea. This
must occur to prevent war. While doing this it will provide great
gain as a continuation of a Kennan like containment of
Russia. I see it as a "judo flip", where Russia is given
immediately much more than it aspired to, or really wants (it wants Crimea to
continue as a justification to control Ukraine), so it will have to accept the
return of these Russian people. Furthermore rights and privileges for the
Tatars could be added which would end with the West having a reason to always
monitor and even act on behalf of the Tatars. Likely the Tatars begin a
long slow burn subversive war which will give Russia a real security problem
and tie them down in the Crimea.

Then, grant Ukraine immediate MAP NATO status and then
swiftly bring them into NATO. There is no tactical way Ukraine can permanently
guarantee its sovereignty but to join NATO. Look how effective membership
in NATO has been for Latvia which backed Russia down from cyber attacks and
using the "planted" displaced Russian homesteaders sent into Latvia
by Stalin to be used just as the Crimea is being used now. Georgia was
granted MAP status three days ago and seems to be headed for NATO
membership. Ukraine and Georgia were some of the rare non NATO nations
who deployed troops (Tonga being another) in Iraq and Afghanistan. The
majority of the catholic Ukraine, which would be the actual majority once
Crimea is returned, main objective has been to join NATO. It can be said
the entire conflict to date has been caused and is about NATO membership.

The Russia will be ring fenced, with NATO surrounding its
immediate borders (but for Belarus) from the Baltic to Georgia. They will
have nowhere to turn, lose diversification and the "granary" of the
Ukraine, lose their high tech centers which was also Ukraine, and have the
majority of their border with Europe indefensible.

Of course it is not certain at all that leadership will be
as thoughtful, or as mindful of history - or even recent history.

The current US administration seems to have lost all their
foreign policy makers of the long line of Kissinger to Brzezinski to Kennan,
who all were students of the Mackinder thesis of the "world island"
or "heartland" vital nature of the Ukraine. Snyder evaluates
this as having Ukraine being the most important strategic land in the
world, measured in terms of blood.

But if the current administration does not understand this
now they will understand it as war, starting as a civil war in Ukraine, begins.

Also Russia is very dangerous now. After Sochi it is
broke and is near completely dependent on natural gas sales which transmit a great part through the Ukraine. Yet I think Russia leadership either
believe themselves, or have the Russian people believing, that they are a mighty
nation again. They are not. But this produces a most dangerous Russian power who will try adventures under unreal beliefs. They must be
placated and allowed to save face, and then final stage of the destruction of Russia as a major force
begins. A Fukuyama "rule of law'" like movement starts in Russia
and then full liberal market based democracy emerges. Or Russia sinks into anarchy and the kleptocracy becomes the visible versus merely hidden. And after that devastation Russia seeks out Europe.

Russia
is headed towards becoming European. I think Putin does not wish
that but he could not have adopted a more disastrous chain
of events than to have attacked Latvia via cyber, then Georgia, then hold
the Sochi monstrosity, and now invade Ukraine. The response is NATO membership for all these countries and NATO becomes a noose around his neck. It will be the end of
Imperial Russia and the emergence of a country on par with Poland and
ironically the Ukraine. But of course how does this come about - another
bloodletting or thoughtfully, or at least somewhat managed with damage contained. I truly wish, dumb or not, we had Bush II
in power now, or at least Hillary Clinton who is ruthlessly pragmatic. I
suspect we have war. Sochi might be such a huge cost on Russia that
the oligarchs throw Putin out office and plead out to Europe. Putin has maneuvered himself with a genius for self destruction.

This event could "make Europe". The entire
EZ crisis has been caused by the German ruthless exploitation of weaker EZ
members. They have been able to do this based upon the bizarre level that the
post-reunification DM went into the Euro, with the level rationalized by the terms of the prior Ostmark conversion to DM. Clearly a deal went down
with the then USSR and at the same time Stasi files went back to the KGB. Merkel is East
German. Shcroeder, after ending on the board of ex-KGB controlled Gazprom
and after securing energy dependency upon Russian natural gas through the
"Nord" pipeline, is reasonably suspected of being a long time Stasi agent. I think at one point everyone who was anyone was either a ex-Nazi or Stasi agent or CIA agent or all of three simultaneously. The connections current German leadership has
with Russia are undeniable. Most of the current German leadership started in
radical leftist street politics, all the parties, and all those groups were funded
and controlled by Stasi. Then of course Germany has the legacy of causing
about 1/3 of the bloodletting in the Ukraine. Germany must be and will be
reclused from the problem. The risk of war, not in Serbia, but in Europe
proper now, will bring back the core reason for the EZ, which is peaceful unity
versus the habit of horrors of the prior century. The US will insist on greater participation from Europe as Ukraine joining NATO insists on greater level of generally
shared expense. Soft power nonsense goes out the window. Defense budget for Europe will double if not triple. So with
the decline of German say in this matter, and with the EU military build up required, and
with the US leaving Europe, forcing Europe into greater self-reliance, a trans-EU command and
control structure is required and a central EU treasury based on the EZ is
required to fund and define. In short a trans-EU defense force will be required. I would imagine the European
people will insist on a democracy overseeing this and the "democracy deficit"
of the EZ and EU will be solved.

Ukraine will bring about the
final step in the Jean Monnet plan and the European sovereignty emerge.
Or I could be out to lunch and general war resumes. I think that will be the choice.

Followers

About Me

Many years of experience in being a market maker, a trader, a salesguy or portfolio manager in almost all asset classes known. Have had a high teens average career return and yet can say that I have lost more money in more asset classes than anyone I know.
My biggest curse is that not even wishing to become involved: "I see dead people.", as the kid said in the movie. I can smell a trade in the drawer or financial fraud or PL blowup miles away. Should have been with the FBI if wanted to max social utility.
Autodidact in all things math, formal education in history.